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Friday, February 3, 2012

Earlier on Friday Dollar gold prices hit their highest level in 11 weeks at $1762 per ounce, a level not seen since mid-November, following US Federal Reserve chairman Ben Bernanke's appearance before Congress on Thursday.

"We are not seeking higher inflation," Bernanke told the House Budget Committee, in response to comments from Republican representative Paul Ryan, who said he was "greatly concerned to hear the Fed recently announce that it would be willing to accept higher-than-desired inflation in order to focus on the [employment] side of its dual mandate."

"We do not want higher inflation and we're not tolerating higher inflation," responded Bernanke, although elsewhere in his testimony he warned that "risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home."

SPOT MARKET gold prices slipped back below $1750 an ounce while stock markets rallied strongly following the release of better-than-expected US jobs figures on Friday.

The Bureau of Labor Statistics nonfarm payrolls report, published on Friday, shows that the US added a net 243,000 nonagricultural private sector jobs last month. In addition, both November and December's nonfarm figures were revised upwards. The unemployment rate fell to 8.3%, down from 8.5% the previous month.

Silver prices also fell following the nonfarm announcement, while the US Dollar saw an immediate gain against major currencies such as the Pound, Euro and Yen.

Earlier on Friday Dollar gold prices hit their highest level in 11 weeks at $1762 per ounce, a level not seen since mid-November, following US Federal Reserve chairman Ben Bernanke's appearance before Congress on Thursday.

"We are not seeking higher inflation," Bernanke told the House Budget Committee, in response to comments from Republican representative Paul Ryan, who said he was "greatly concerned to hear the Fed recently announce that it would be willing to accept higher-than-desired inflation in order to focus on the [employment] side of its dual mandate."

"We do not want higher inflation and we're not tolerating higher inflation," responded Bernanke, although elsewhere in his testimony he warned that "risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home."

Fed policymakers revealed last week that a majority of them expects interest rates to remain near zero for at least the next three years. Bernanke added yesterday that the speed and aggressiveness of any future rate rises "may depend to some extent on the balance" between maintaining employment and pursuing price stability.

"These comments lent support to gold," reckons James Steel, chief commodities analyst at HSBC in New York, noting that the Fed could opt for additional quantitative easing if progress towards full employment was inadequate.

US inflation as measured by the consumer prices index fell to 3.0% in December, down from 3.4% the previous month, but up from 1.1% 12 months earlier.

"As every day goes by, I see deflation in the things you own and inflation in the things you need," said hedge-fund partner Kyle Bass at a meeting of the University of Texas's $25.7 billion Investment Management Co. (Utimco) in Austin, Texas on Thursday.

"I'm against selling any of the gold," Bass said, referring to the $1.2bn which Utimco now owns in physical gold bars after switching out of futures contracts then worth $992m in April 2011.

Over in Europe, Greece's finance minister Evangelos Venizelos said Thursday that the European Central Bank would need to take losses on its Greek government debt holdings if Greece is to achieve the goal of reducing its debt-to-GDP ratio to 120% by 2020.

Greece is yet to agree a deal with its private creditors over the size of losses they will take. The lack of a deal throws into doubt Greece's €130 billion second bailout, without which it will be unable to pay out on maturing bonds next month.

"Greece needs a new program, there's no question about that, but Greece must create the conditions for it," German finance minister Wolfgang Schaeuble said Thursday.

"We can't pay into a bottomless pit."

"Precious metals are enjoying some support from safe-haven demand as issues in the Eurozone once again weigh on investors' minds," says Marc Ground, commodities strategist at Standard Bank, who sees resistance for gold prices at $1768 per ounce.

Gold jewelers in India meantime the government to raise the duty drawback – the amount of duty exporters can claim back from the Department of Revenue – applicable to the gems and jewelry sector. The request from the Federation of Indian Exports Organisations follows the government's decision last month to increase duty on gold bullion imports and switch to an ad valorem tax, which takes the form of a percentage of value rather than a discrete amount by weight.

Heading into the weekend, Dollar gold prices looked set to record their fifth straight weekly gain.
The gold price in Euros meantime was up 1.8% for the week by Friday lunchtime, and closing in on the four-month high touched earlier on Friday at €43,098 per kilo (€1340 an ounce).

Like those for gold, Dollar silver prices also hit their highest levels since November Friday morning, at $34.44 per ounce.

Based on London Fix prices, gold is up nearly 15% since the end of 2011, while silver is up by more than 19%. Despite silver's rise, however, the world's largest silver ETF, the iShares Silver Trust (ticker: SLV) has seen its holdings of bullion rise just 0.2% since the start of 2012.

By contrast, the amount of gold held to back shares in the SPDR Gold Trust (ticker: GLD), the world's largest gold ETF has grown 1.8% over the same period, rising to its highest level since December 20 yesterday at 1277 tonnes.

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

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